Launch of new Royal Enfield may help Eicher to grow: Analysts

The popular motorbike is expected to beat peers in the domestic market in FY22

Strong volume growth, led by new launches, steps taken to ease supply-side constraints, and ability to maintain margins are positive for Eicher Motors while heading into FY22. While exports at 6 per cent still constitute a small portion of its overall volume, the company believes there is a large opportunity for mid-sized bikes in overseas markets.

For February, the company registered growth of 94 per cent in exports, helping it outperform the sector. After the success of the 650cc twins, the company is looking at increasing its share with new launches in key markets. It is targeting a 10 per cent share in the export markets and has already crossed this mark in South Korea and Australia. After setting up its first overseas plant in Argentina, the company is looking at establishing plants in Thailand, Brazil, and Columbia. 

The key near-term trigger for the company, whose volumes have been down 17 per cent in FY21 so far, is new launches. Jinesh Gandhi and Vipul Agrawal of Motilal Oswal Research say: “After witnessing severe headwinds over the past 18 months, we expect volumes to grow from here on. The beginning of new launches can be an inflection point for Royal Enfield (RE), as a completely new and improved platform can usher in a revival.” 

The all new Classic 350, expected to be launched in the first quarter of FY22, will be key to volume growth aspirations of RE. The existing Classic 350 accounts for two-thirds of domestic volumes. The company's last launch in this segment was the Meteor 350, in November last year; the model now accounts for 10 per cent of volumes. This was followed by the Himalayan’s launch last month and follows the company’s goal of one new model or refresh per quarter. 

Analysts at IIFL Securities expect RE to outperform with volume growth of 37 per cent in FY22, aided by fresh launches, as compared to the two-wheeler sector’s growth of 22 per cent. In addition to demand, debottlenecking of  facilities/expansion will be key to maintain volumes. 

The company can face commodity cost inflation, impacting its margin. However, analysts say RE is better placed than peers, given its presence in the higher margin premium segment and lower impact as a percentage of selling price. The company has taken price hikes to offset some pressure on the margin. The recovery in volumes for its commercial vehicle joint venture with Volvo, too, should aid in boosting the consolidated profits for FY22. 

Steady volumes growth in the near-term will be the key trigger for investors.